Three Hidden Reasons Small Businesses Run Out of Money

Sweat pours from your brow like a tropical rainstorm. You’ve gone through these account ledgers, receipts and bank statements over and over again.

But you still come up with the same number and it’s looking big and red. You’ve run out of money. One of the most embarrassing episodes we as business people and just human beings experience is running out of cash.

When I worked in a CPA office, we saw all sorts of financial scenarios. Everything from people who had so much cash they had to open extra bank accounts to literally a clothing store that ended each month with a dollar. Yes just one dollar…

The most surprising part was the clients who were hurting for cash always seemed surprised. In fact, it’s as if they put a hood over their heads and pretended they had no financial issues until it slapped them right in the face.

Let’s avoid this, here’s three reasons why businesses run out of cash and how you can avoid them.

1. Account Balance Blindness. My grandma didn’t go to Harvard, didn’t go to accountancy school, in fact she barely got through public school in New York. But damn if she couldn’t read a bank statement and know exactly what was going on.

We as Americans tend to hate dealing with money. Love spending, hate dealing with it. Part of dealing with your money situation is actually looking at it. This means when your statement comes in the mail or email, you open it up and see how much is in there.

Seems simple, but what happens is we tend to lose track of where our money goes. While you’re busting your butt all day long taking orders, shipping packages and running the ship. Money seems to get lost in the shuffle and since we hate dealing with financial realities the blinders come on.

Do one of two things: a) hire a good accountant to do it for you, in fact if you can afford it do this because it takes another mundane item off your plate or b) set up a system to deal with your finances (more on this next).

2. Disorganized Financial Management. One of the best books I read on personal finance was “I Will Teach You To Be Rich” by Ramit Sethi (iwillteachyoutoberich.com). In the book , he talks about how people have no systems in place to deal with their money issues. One of the main points in the book and how it relates to business finance is the mythical creature called a budget.

We love talking about keeping budgets but realistically…it doesn’t happen. Keeping a budget takes will power and will power doesn’t lasts. Systems do though and here’s how you can create one.

First, automate all the bills you need to pay electronically. For instance, you can probably pay your rent, utilities, insurance and many other expenses by simply taking a few minutes and setting up automatic payments. Next, take a percentage of your revenues, say 5% and put them away for savings. So when you need to buy a new machine or repair a broken one…money is already there. Do the same for your taxes and so on. There’s a great chance that your banker can help you set them up and again, it’s another thing you don’t have to waste time on.

3. Wasting Time On Trivial Matters. What does time have to do with money? Simple, every minute of the day you aren’t looking to generate more customers and revenue is time that you spend doing things that probably don’t amount to much. For instance, worrying about your Facebook account or how many Twitter followers you have. Worrying about the 80% of customers that don’t come back rather than the 20% that are diehard customers.

If you actually tracked what you did with your time during the day, you’d be shocked at what you spend it on. And yes, spend is absolutely the correct word for using time. Like your money, time is spent in different areas with the biggest difference being you can’t get time back.

What you need to do is outsource all non-essential tasks. For instance, if you want a social media account (for whatever reason you’d need one). Have an employee deal with it. Think you need to blog…have your nephew do it. You need to focus on the big wins. Gaining more customers, marketing, sales and customer service.